How much is professional liability insurance?

Also known as errors and omissions liability, or E&O insurance, professional liability protects you against unhappy clients. This policy is best suited for those who provide professional goods or services, and comes in handy in the event you make a mistake or overlook important details.

There is no cut-and-dried answer for the price of an E&O insurance policy. However, we’ve put together a detailed cost analysis that will give you an idea of general price ranges for small businesses. Please understand that these are just estimates and that the cost of professional liability is very specific to each business’s circumstances.

The only way to figure out exactly how much an E&O policy will cost is to compare E&O quotes from over 30 top insurance companies with one simple form. Our experts will find you the right coverage at the lowest cost, and we’ll do it for free.

Professional liability cost factors

The cost depends greatly on what your work entails. Below are a few elements that can affect the price of E&O insurance.

Your profession

A primary reason people purchase insurance is to manage their risk. It’s nearly impossible to have a cookie cutter insurance policy, because all professions have different liabilities. The more risk in your industry, the higher the cost of your pro insurance may be.

Your location

The frequency (and cost) of industry lawsuits can vary by state, or even by zip code. Because court costs and lawyer’s fees are benefits of this policy, the cost can fluctuate by location.

Your size

Professional liability costs depend on the size of your operation, how many employees you have, and your annual revenue.

Your tendencies

If you hire experienced workers, and provide them with good training, this can help your chances of getting a cheaper E&O policy. The same is true when it comes to working with well-written contracts. And, of course, avoiding lawsuits.

Number of industry claims

If there is a high number of claims filed in your field, insurance companies will raise the price of the policy for the industry as a whole. However, if there are few claims, providers will lower premiums.

Your liability limits

The level of liability limits you select for you policy refers to the maximum price your insurance provider will pay for a claim. The higher your limits, the more expensive your policy will be. The graph below depicts popular professional liability limits.

Average cost by profession

Many small businesses can expect to pay somewhere between $600 and $1,800 per year for a professional liability policy. That said, a good proportion of our policyholders are in the $900 range for a year’s worth of professional liability coverage.

If you are considered to be low-risk (like if you’re a one-person operation working as a consultant or a hairdresser), the cost of your policy will be less expensive compared with someone who faces more risk, like an IT professional. Smaller businesses can expect to pay around $80 / month for E&O insurance for up to $2 million dollars in coverage.

$80 per month may not sound like an enticing investment, but on average, 45% of small businesses are involved in at least one litigation per year. With professional liability protection, you will be covered in the event that a client claims you made a professional mistake, were negligent, or failed to deliver promised services.

Event policies vs. annual policies

Event policy

These short-term policies are something you might purchase if you are hosting an event, like a conference or fundraiser. Event-based policies might seem cheaper up front, but they can really add up. If you think you might be working on more than one or two events a year, consider purchasing an annual policy — it could end up saving you money in the long run.

Annual policy

If you’re not getting a short-term policy for an event, the only other way to get professional liability is to purchase an annual policy.

If a client requires you to have your own insurance for a specific gig, it’s not recommended to cancel the policy after the gig is over. Firstly, there’s no benefit to cancel, because it’s not going to save you money. Even if you have the policy for a month-long project and cancel it afterwards, you’re still paying the price for a yearly E&O policy.

Secondly, if you keep stopping and starting policies, your insurance provider will most likely raise your rates. This is because they may think you’ve been working without coverage. You could be seen as a higher risk than someone who has been continuously insured while working.

How to save money on errors and omissions

Understanding how insurance deductibles work

By definition, a deductible is the amount of money you pay for a claim before your insurance kicks in. Let’s say your deductible is $1,000. You face a client lawsuit, which amounts to $8,000. To handle the claim, you would pay the first $1,000, and your insurance provider would pay the remaining balance.

Deductibles often vary based on the size of your operation. Typically, the larger the company, the higher the deductible. That’s because a larger operation can absorb more of the sharing of risk (and therefore, cost).

The higher your deductible, the lower your premium.

Insurance providers will give you a discounted rate if you’re willing to take more of a risk upfront. So, if you bump up your E&O deductible from $500 to $1,000, you’ll save on a percentage of your premium.

Although most small businesses have deducibles that hover around $500–$1,000, there is a lot of flexibility when it comes to setting the price. Just remember, the lower your deductible, the more your policy will cost.

Risk transfer by use of contracts

Insurance companies provide insurance to manage risk, which you probably already know by now. But what you might not be aware of is that they will oftentimes reward policyholders for sharing risk, or working towards minimizing their risk.

There are several ways to minimize your liabilities. Firstly, if you work with outside contractors, require them to have their own insurance policy, and ask to be listed on their policy as an additional insured. That way, if something happens, you’re not exposed. Instead of relying on your coverage, you’ll be able to benefit from theirs.

Another way to minimize your risk, and ultimately your bill, is to avoid hiring uninsured subcontractors. If something happens to them while they are working for you, they can file a claim against you and your insurance. Filing claims impacts the cost of your policy, so be sure to have subcontractors carry their own insurance policy. That way, they can’t rely on yours.

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